Positive Cash Flow + Loe-hypothetical

I have just had athought that on the face of it seems logical but would welcome any input to let me know if I'm dreamin.

Just say you had a number of positively geared IP's and a PPOR all with mortgages but the IP's produced enough to live on. Could you elect to use this +VE CF to pay higher loan repayments on the IP's or the PPOR then get a Line of Credit (LOC) arranged to be drawn down at an annual figure equal to the annual +VE CF? The bank I would think would be happy as the money in equals the money out.

The benefits I see would be paying your IP's or PPOR off sooner plus the tax advantages of not having to pay tax on the +VE CF income as it goes to paying off your mortgages and not paying tax on the LOC as it is a loan.

Am I missing something? All advice gratefully accepted:)
 
The benefits I see would be paying your IP's or PPOR off sooner plus the tax advantages of not having to pay tax on the +VE CF income as it goes to paying off your mortgages and not paying tax on the LOC as it is a loan.
I think I know what you're trying to say. The bit you've missed is that you would still pay tax on the profits from your IPs; you're just electing to put your tax-paid profit dollars into repayments. Only the interest portion of payments is deductible, so making extra payments doesn't increase how much you can deduct from rental income.

Doing what you proposed is exactly the same - in terms of cashflow and tax payable - as just living off the positive cashflow of your IPs, but doing it via a much more complex means, ie paying down IP debt then setting up a new LOC for the same amount.

As I've stated, I think the flaw in your plan is that you've made the mistake of thinking that your loan payments are deductible in toto, rather than just the interest component.
 
Many thanks Ozperp and apologies for taking so long to get back to you.
Yep fully agree. I was probably having a seniors moment when I penned the question. Thanks for putting me back on track. Back to plan 'B' ! :)
 
John, I take it from your question you would still have a PPoR mortgage?
Then pay the extra into the PPoR would be the best way to go to reduce that non tax deductible debt.

Also you seem to like the LOC's. Wouldn't an offset account be a better choice as it's easier to manage and wont have the LOC redraw fees?
 
Hi Gools

What you said makes sense too , and yes I do still have a mortgage against my ppor . I guess what I am trying to accomplish is to create a cash flow in semi-retirement that I can legally minimise the tax payable on plus pay off ppor ( as you pointed out) sooner. But like Ozperp said, there are less complex ways to do it

Thanks for your help............:):)
 
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